Against the Consensus: Reflections on the Great Recession by Lin J.Y.

By Lin J.Y.

In June 2008, Justin Yifu Lin was once appointed leader Economist of the area financial institution, correct sooner than the eruption of the worst international monetary and fiscal situation because the nice melancholy. Drawing on adventure from his privileged place, Lin deals particular reflections at the reason behind the situation, why it was once so critical and common, and its most probably evolution. Arguing that traditional theories supply insufficient ideas, he proposes new tasks for reaching international balance and keeping off the recurrence of comparable crises sooner or later. He means that the quandary and the worldwide imbalances either originated with the surplus liquidity created by way of US monetary deregulation and unfastened financial coverage, and recommends the production of an international Marshall Plan and a brand new supranational worldwide reserve foreign money. This thought-provoking publication will attract lecturers, graduate scholars, coverage makers, and somebody attracted to the worldwide economic system

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Specifically, they argue that it was the toxic interaction of the Federal Reserve Board’s monetary stance, global real interest rates, credit market distortions, and financial innovation that made the United States the epicenter of the global financial crisis. Klein and Cukier (2009) exemplify this argument. Aizenman (2008) and Aizenman and Lee (2008) provide evidence of self-insurance motives in East Asia. Ben-Bassat and Gottlieb (1992) also support this viewpoint, with a general model tested using data on Israel.

Source: Bullard (2010), based on daily data from the Financial Times and Reuters for 2007 to 2010. from a liquidity crisis and help financial institutions restore credit, the Federal Reserve Board lowered effective interest rates to a nominal rate close to 0 percent. 13 The financial crisis severely damaged the real economy. Consumer credit, which had been growing steadily during the boom years, dried up. Companies with expansion plans could not raise the capital to finance them. Worldwide, the number of start-ups tumbled, as lending for new projects became too risky.

According to the National Bureau of Economic Research (2010), the 2001 recession lasted eight months (from March to November), shorter than the average duration of US recessions in the postwar era. 7 Long-term effective federal funds rate Source: US Federal Reserve Board (2009). The Fed’s monetary policy and low interest rates had a strong impact on the US housing market. 26 Rajan notes that “sustained easy monetary policy that is maintained while jobs are still scarce has the effect of 24 25 26 Jarocinski and Smets (2008: 362).

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